Lester, Torres, and Hearst are members of Arcadia Sales, LLC, sharing income and losses in the...
Lester, Torres, and Hearst are members of Arcadia Sales, LLC, sharing income and losses in the ratio of 2:2:1, respectively. The members decide to liquidate the limited liability company. The members’ equity prior to liquidation and asset realization on August 1 are as follows:
| Lester | $47,790 |
| Torres | 56,410 |
| Hearst | 29,660 |
| Total | $133,860 |
In winding up operations during the month of August, noncash assets with a book value of $141,110 are sold for $153,690, and liabilities of $33,840 are satisfied. Prior to realization, Arcadia Sales has a cash balance of $26,590.
| Required: | |
| a. | Prepare a statement of LLC liquidation. |
| b. | Provide the journal entry for the final cash distribution to members on August 31. Refer to the Chart of Accounts for exact wording of account titles. |
| c. | What is the role of the income- and loss-sharing ratio in liquidating a LLC? |
Homework Answers
| Solution: A | STATEMENT OF PARTNERSHIP LIQUIDATION | ||||||||
| Particulars | Cash | + | Non Cash Assets | = | Laibilites + | Lester | Torres | Hearst | |
| 40.00% | 40.00% | 20.00% | |||||||
| Balance before realization | $ 26,590 | + | $ 141,110 | = | $ 33,840 | $ 47,790 | $ 56,410 | $ 29,660 | |
| Sale of Non Cash and allocation of Gain | $ 153,690 | $ -141,110 | $ - | $ 5,032 | $ 5,032 | $ 2,516 | |||
| ($ 12,580 X 40%) | ($ 12,580 X 40%) | ($ 12,580 X 20%) | |||||||
| (Gain = $ 153,690 - $ 141,110 = $ 12,580) | |||||||||
| New Balance | $ 180,280 | + | $ - | = | $ 33,840 | $ 52,822 | $ 61,442 | $ 32,176 | |
| Pay Liabilities | $ -33,840 | + | $ - | = | $ -33,840 | $ - | $ - | $ - | |
| New Balance | $ 146,440 | + | $ - | = | $ - | $ 52,822 | $ 61,442 | $ 32,176 | |
| Cash Distributed to Partners | $ -146,440 | + | $ - | = | $ - | $ -52,822 | $ -61,442 | $ -32,176 | |
| Final Balance | $ - | + | $ - | = | $ - | $ - | $ - | $ - | |
| Solution: B | |||||||||
| Transaction | Account Title and Explanation | Debit | Credit | ||||||
| A | Cash | $ 153,690 | |||||||
| Non Cash Assets | $ 141,110 | ||||||||
| Gain on sale of non cash assets | $ 12,580 | ||||||||
| (To Record the sale of Non cash assets) | |||||||||
| B | Gain on sale of Non Cash Assets | $ 12,580 | |||||||
| Lester's Capital Account | $ 5,032 | ||||||||
| Torres's Capital Account | $ 5,032 | ||||||||
| Hearst's Capital Accounnt | $ 2,516 | ||||||||
| (To Record the distribution of Gain on sale of assets) | |||||||||
| C | Liabilities Account | $ 33,840 | |||||||
| Cash | $ 33,840 | ||||||||
| (To Record the payment of Liability) | |||||||||
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